New tactics require new strategies: how can the European Union strengthen the fight against terrorism financing?

In an interview released to the Press Service of the European Parliament on Wednesday 28th February 2018, the ALDE member Javier Nart called for more ways to address a global security issue that has concerned Community and international institutions for a long time now, namely terrorism funding. The Spanish Member of the European Parliament (MEP) has proposed to create an intelligence platform in order to forge the links between financial institutions, intelligence agencies and European judiciary bodies as, verbatim, “if we tackle the logistics, we fix the issue”. Since it is indeed true that the fight against terrorism funding requires solid judicial cooperation and intelligence sharing across Europe, a question springs to mind: how can the European Union (EU) effectively strengthen its strategy? In order to answer such question, the following article will first give an overview on the self proclaimed Islamic State of Iraq and Syria (ISIS) revenue sources, further analyse the main counter-measures implemented so far by EU institutions, and finally examine the main features of a renovated holistic approach to this issue.

Latest trends on terrorism financing

The most prominent terrorism research centres and academics in the field agree on the fact that terrorist activity is funded through both legal and illegal sources. While legitimate funding sources mainly consist of savings accounts and loans, the origin of illicit avenues ranges from petty to serious crimes, thus including theft, robberies, sale of counterfeit goods as well as narcotics trafficking, human trafficking, extortion and banking transfers. In particular, as the number of young terrorists dramatically increases, so does the computer literacy of terrorist groups which use the modern technological financial services and cryptocurrencies to easily transfer money. According to the European Union Terrorism Situation and Trend Report issued by Europol in June 2017, only “up to 40% of terrorist plots in Europe are believed to be at least partly financed through crime”. Financing of attacks is strictly correlated to the modus operandi of terrorists: as stated by Javier Nart, the latest trends in Europe have shown that “we have gone from large-scale terrorism through economic investments like with the Twin Towers in New York, to terrorism that has a big impact but is only financed on a short timescale, so it is almost amateur”. Compared to the 9/11 attacks, whose cost amounted to between $400,000 and $500,000, deadly recent attacks in Europe have not been as expensive: the most expensive November 2015 Paris attacks were estimated to have cost a maximum of €20,000, while the latest jihadist attacks using vehicles, such as in Nice and London, respectively in 2016 and 2017, have been essentially inexpensive. Such radical shift in tactics explains why the majority of plots are now either funded from legitimate sources or from petty criminality, making recent terrorism financing activity in Europe remarkably ordinary. Ultimately, as stated by Professor Peter Neumann, Director of the International Centre for the Study of Radicalisation, “Europe is seeing the rise of ‘small-dollar terrorism’”.

ISIS’s revenue sources

While Al-Qaeda is silently rebuilding its global network, ISIS stands out as the deadliest and wealthiest terrorist group. Estimates from 2016 indicate that at least 9,132 people were killed by ISIS in 2016 and that in the same year its annual revenues amounted to $2 billion.

According to the Financial Action Task Force (FATF) report on ISIS’ sources of funding, the organisation earns revenue from the following five sources: (1) illicit proceeds from occupation of territory; (2) kidnapping for ransom; (3) fundraising through modern communication networks; (4) donations including by or through non-profit organisations; (5) material support associated with foreign terrorist fighters.

Illicit proceeds from occupation of territory

Among funds drawn from occupation of territory, on which ISIS’ strategy of self-funding is primarily based, oil smuggling and illicit taxation constitute the most remunerative activities. However, such a strategy leaves the organisation highly susceptible to any action that impinges on the territory where it operates: it is indeed estimated that ISIS’ revenue has fallen from $81 million per month in 2015 to $16 million per month in 2017. These falls are mostly due to the military campaigns of the Global Coalition against ISIS that by early 2017 had destroyed more than 2,600 sites relating to oil extraction, refinement and sale. As mentioned above, a significant portion of ISIS’ wealth also origins from illicit taxation, extortion and bank robberies that are perpetrated in controlled territories. By acting just like organized crime groups do, and therefore by relying on the threat and the use of force, ISIS has imposed levies on all goods transiting the occupied territories and created a sophisticated racket system, remarkably enhancing its economic assets financed with both non-monetary and cash transactions.

Kidnapping for ransom

Due to the secrecy of ransom payments, it is quite difficult to assess how much ISIS has earned in recent years from kidnapping for ransom. However, according to FATF, estimates range from $20 million to $45 million only in 2016. ISIS has kidnapped hundreds of individuals, from local Iraqis and Syrians to Westerners and East Asians located in the region. Unfortunately, while some hostages are exclusively used to extort ransom payments, others are brutally killed to send a political message through ISIS’ main channels of communication, including social media.

Fundraising through modern communication networks

ISIS disseminates its propaganda thanks to several media branches, the most important of which are the Al-Itisam Establishment for Media Production and the Al Hayat Media Center. While the former targets the West by playing on regional sentiments, the latter predominately manages the distribution of ISIS propaganda via social media platforms and accounts related to the organisation.

Through social media accounts, ISIS can maximize its ability to go “viral” and create an opportunity to gain immense support and potential funding, as indeed happened on 18th June 2014 during the #AllEyesOnISIS “Twitter storm”. As emphasised by President Antonio Tajani during the European Parliament’s Special Committee on Terrorism (TERR) meeting in Brussels on Wednesday 21st March 2018, it is necessary to “prevent people from using Facebook, Youtube and Twitter to pursue propaganda to the service of terrorism”.

Donations

External donations represent only a small portion of ISIS’ revenue sources. However, it is of the utmost importance to monitor the origin of received funds in order to detect silent key players in terrorist networks and break up organisational ties. Financial support may also come from charitable funds and principal officers purportedly serving the needs of Syrian refugees, as in the case of an organisation based in Northern Italy which, while promoting charitable activities in Syria, was unwittingly used to transfer money connected to terrorist activity.

Material support

Material support encompasses both monetary and physical support, including camouflage, weapons, cartridges and other military supplies. Foreign terrorist fighters (FTFs) are a relatively small and yet important source of funding for ISIS, as they can set up networks and collect money in their home countries and travel with funds to join the terrorist group. Although the number of FTFs attracted into ISIS ranks is difficult to estimate, the Global Coalition suggested that from 2012 to October 2016 over 40,000 foreign fighters from more than 120 countries have entered Syria. It follows that, although financial support from such sources are relatively low, manpower is indeed quite significant.

EU steps towards combating terrorism financing

Although the recent developments in tactics as described above, terrorism is certainly not a new phenomenon in Europe. Many European countries had been dealing with domestic terrorist groups long before the rise of jihadist organisations, such as the United Kingdom with IRA and Spain with ETA. Europeans have thus first approached terrorism on a national level, adopting national counter-terrorism legislation and progressively adapting it to the required regional standards in view of a more efficient cooperation across Europe.

In the last fifteen years, the EU has indeed sought to establish itself as the main forum for counter-terrorism cooperation between the Member States. Although counter-terrorism lies primarily within the competence of national authorities, the EU has created a legal and policy framework covering a wide range of areas, including the fight against terrorist financing: for instance, international administrative measures with regard to listing systems and asset-freezing regimes, such as the United Nations Security Council Resolution 1373, were promptly implemented by the EU; the aforementioned FATF was funded by the European Commission and the G7 Heads of State or Government in order to examine money laundering techniques and trends and, as a complementary mission, to deal with the issue of terrorist financing. The 2005 EU Counter-Terrorism Strategy, which continues to be the main reference framework for EU action in this field, recalls FATF recommendations as part of EU’s comprehensive strategy for combating terrorism financing, further underlining the necessity to implement a EU-wide legislation concerning money laundering and cash transfers, and to impede money transfers by terrorists. More recent steps towards an effective fight against terrorism financing at the European level include: (1) the establishment of the EU Action Plan for strengthening the fight against terrorist financing specifically; (2) the creation of the European Counter Terrorism Centre by Europol; (3) the set-up of the TERR Committee by the European Parliament.

The EU Action Plan

The European Commission presented the EU Action Plan for strengthening the fight against the financing of terrorism on 2nd February 2016, as part of the revision of the Fourth Anti-Money-Laundering Directive (AMLD 4) passed in May 2015. The Action Plan focused on several strands of actions which included, inter alia, the prevention of the movement of funds and the enhancement of information exchange between Member States. In its communication, the Commission has addressed the obligation for Member States to apply enhanced due diligence measures on financial flows coming from and going to countries with strategic deficiencies in the area of countering terrorist financing, the so-called “high risk third countries”. Furthermore, it has underlined the necessity to enhance the powers of EU Financial Intelligence Units (FIUs) and to facilitate their cooperation by providing them with swift access to information on the holders of bank accounts, through national centralised registers or electronic data retrieval systems. As explained in the Press Release on the EU Action Plan, FIUs are “public authorities that exist in every Member State” whose task is to gather, analyse and transmit information about any suspicious transactions or any relevant information concerning money laundering or terrorism financing.

Finally, the EU Action Plan addressed the misuse of virtual currency exchange platforms and prepaid instruments, such as prepaid cards which were indeed used during the 2015 Paris attacks. Since, despite their anonymity, the majority of prepaid cards need to be activated online before the first usage, a process known as ‘customer due diligence’ was demanded to distributors in order to verify the identity of their customers. As for the anonymity of virtual currencies transactions, it was envisaged to possibly apply the same licensing and supervision rules which are currently applied for payment providers and users.

The European Counter Terrorism Centre

The European Counter Terrorism Centre (ETCT) was established by Europol in January 2016 in order to ensure an effective response to the progressively broader strategy of jihadist terrorism in Europe, including the return of FTFs. Its creation also entailed the launch of the Internet Referral Unit (IRU), aimed at detecting online terrorism content and propaganda.

The action of the ETCT as a hub to exchange information is mainly focused on the following tasks: (1) providing operational support upon a request from a EU Member State for investigations following terrorist attacks; (2) tackling FTFs; (3) sharing intelligence and expertise on terrorism financing; (4) tackling online terrorist propaganda and extremism through IRU; (5) detecting illegal arms trafficking; (6) collaborating at the international level with other counter terrorism authorities.

As for terrorism financing specifically, Europol also hosts FIU.net, a decentralised and sophisticated computer network supporting the aforementioned FIUs across Europe. FIU.net ultimately provides Europol and individual FIUs with all the tools they need to detect and combat money laundering and the financing of terrorism at the level required to ensure success.

The Special Committee on Terrorism

In July 2017, the European Parliament set up the TERR to investigate deficiencies in counter-terrorism policies and to consider possible ways forward. Since then, the TERR has been working to reinforce EU external border controls, improve judicial, law enforcement and intelligence information sharing among Member States, strengthen interoperability of European information-sharing database and promote best practices in the fight against money laundering and terrorism financing, including its links to various forms of organised crime. In order to do so, the TERR holds hearings with other EU institutions, the Europol law enforcement cooperation agency, the national parliaments and governments of Member States and non-EU countries, law enforcement agencies and intelligence services.

Javier Nart’s Report

In view of the above, it seems quite reasonable to affirm that the major flaw of the main counter-terrorism financing policies conceived by the EU as a whole is the lack of an effective intelligence and information sharing that, as stated by ALDE MEP Guy Verhofstadt on the occasion of the TERR set-up, “could be carried out in a more systematic and efficient manner”.

It follows that Javier Nart’s recent thoughts, presented to the European Parliament as a report, actually reflect the necessity for EU to harmonise Member States’ actions and to develop a true European intelligence service. The report focuses on the logistics of criminal jihadism by making realistic recommendations that can be embraced by financial institutions, intelligence agencies and judiciary bodies across Europe. As mentioned in the introductory note of this article, one of the most relevant suggestions concerns the creation of a counter-terrorism financial intelligence platform where information can be voluntarily shared and intelligence services can interact regularly. This holistic platform, which would be run by Europol, would be supported by a related database in which all suspicious transaction could be transmitted. However, as mentioned in the report, the investigation of financial transactions would require a high degree of attention to the respect of European financial privacy law and the balance between freedom and security in order not to follow the path of the EU-US Terrorist Financing Tracking Programme (TFTP) which has been recently under Commission’s review due to concerns over the full conformity with EU data protection and privacy legislation. Another recommendation suggested by the report concerns the transparency of the financial system, which should be certainly improved even for small transactions and for traditional forms of change such as “Hawala”. The report also stresses the importance to regulate modern technological financial services under EU rules and evaluate the role of cryptocurrencies and blockchain technology in supporting terrorism financing. A final relevant issue is given by the necessity to monitor funds received by cultural, worship and education centres, charities, and cultural associations where there is reasonable suspicion of ties to terrorist organisations.

Javier Nart’s report, which ultimately invokes a new “microfinance” approach, was approved just a few months after the publication of a the Comprehensive Assessment of EU Security Policy by the European Commission: it had been therein concluded that, despite the main EU security policy instruments are appropriate and that EU action had delivered positive results, the lack of full and effective implementation by Member States limits “the beneficial impact of the acquis and constrain the full exploitation of existing instruments”. The Fifth Anti-Money Laundering Directive (AMLD 5), proposed by the European Commission in July 2016, is among the EU provisions that still need comprehensive implementation. Other than sharing the same objectives of Javier Nart’s report, especially with regard to financial intelligence sharing and cryptocurrencies monitoring, AMLD 5 also introduces stricter safeguards for financial flows from high-risk countries, requiring the registration of beneficial owners of companies operating within the EU to be publicly accessible through national registers in order to facilitate cooperation between Member States.

According to the European Commission, full implementation of European provisions such as AMLD 5 could be undermined by several factors, including the complexity of the rules governing the use of EU instruments, the costs incurred by Member States and the lack of specialised human resources in the relevant services in Member States.

Conclusions

More than fifteen years of traditional “financial war on terror” have proven that national governments, policymakers and EU institutions need to drastically reform their strategy as a whole. The fight against terrorism financing should not be limited to the financial sector as this cannot address the variegated aspects of the issue. As stated by Professor Peter Neumann, “financial tools can not stop lone attackers from driving cars into crowds, nor can they do much when […] ISIS holds territory and earns most of its income from within it”. This is the reason why counter-terrorism financing should be included in a coordinated political strategy able to implement a more pragmatic and targeted approach to deprive terrorists of their funds: for instance, countering terrorism financing in Belgium and Luxembourg could mean tackling petty crime, while in Iraq and Syria it could require military campaigns targeting oil facilities and cash storage sites.

It follows that in order to efficiently fight against a new form of transnational terrorism that knows no national borders, just like its financing, the EU should support national authorities in integrating their policies against terrorist financing into a wider and harmonised counter-terrorism strategy.